CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money.
US English

What is a cash flow statement?

Learn more about cash flow

The cash flow statement definition refers to the financial statement issued by a business, which summarises the amount of cash and cash equivalents entering and leaving a company. Also known as the statement of cash flows, it reports the cash generated and used during a specific period of time, such as a month, quarter or year. The time interval that the statement covers is defined by the company.

The cash flow statement serves as a measurement of how well a business manages its cash position, generating cash to fund its operating expenses and pay its debt obligations. It acts as a bridge between the income statement and balance sheet and is an obligatory part of a company's financial reports.

The cash flow statement allows investors to have a better understanding of the way a company conducts its operations, giving an insight into where its money comes from and how this money is spent. It carries significant importance as it helps investors get an overall sense of the company’s cash inflows, determine whether it is on solid financial ground and obtain a general understanding of its overall performance.

Where have you heard about cash flow statements?

Typically, publicly traded companies publish their cash flow statements in quarterly or annual reports.

You may have heard about the cash flow statements for at least a few times before. These usually come across when the Financial Times or other financial news sources cover some major companies reporting their financial reports.

Moreover, your investment manager or financial advisor may have recommended keeping your eye on the cash flow statements of theyour chosen company when making investment decisions.

What you need to know about cash flow statements…

Every publicly-traded company must file financial statements and reports with the Securities and Exchange Commission in the US and other financial regulators alike worldwidein other countries. The principal financial statements are the income statement, balance sheet and cash flow statement.

Sometimes, even very profitable businesses may fail to adequately manage their cash flow. According to its income statement, a company may show the most fantastic performance backed by huge profits. Yet, it may have nothing left in the bank.

This situation could occur if a company was not monitoring its cash flows or all or most of its sales have been made on credit.

For example, imagine a company that sells goods. It decides to extend credit for the sale to its customers. Even though the company recognises that sale as revenue, it will not receive cash until later in the future. The business adds this profit on its income statement and pays income taxes on it. However, the company may generate more or less cash than the sales or income figures show.
That is the reason behind the cash flow statement being a crucial tool used by companies, investors and analysts to conduct accurate evaluations. 

The three main types of cash flow statement components are:

  1. Cash from financing activities.

  2. Cash from operating activities;

  3. Cash from investing activities;

Sometimes, disclosure of non-cash activities may be included when prepared under GAAP, the generally accepted accounting principles.

The cash flow statement is believed to be one of the most intuitive financial statements as it follows the cash made by the business through three main ways: operations, financing and investment. The sum of these three segments is known as net cash flow.

A company's financial statements offer investors and analysts insight into all the transactions that go through a company, where every transaction contributes to its success. It provides them with key information that should be considered when making investment decisions. Creditors, on the other hand, tend to use the cash flow statement to determine how much cash is available for the company to fund its operating expenses and pay its debt obligations.

Related Terms

Latest video

Latest Articles

View all articles

Still looking for a broker you can trust?

Join the 610,000+ traders worldwide that chose to trade with

1. Create & verify your account 2. Make your first deposit 3. You’re all set. Start trading